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<SEC-DOCUMENT>0000950133-06-000472.txt : 20060929
<SEC-HEADER>0000950133-06-000472.hdr.sgml : 20060929
<ACCEPTANCE-DATETIME>20060206141547
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000950133-06-000472
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20060206

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ACE COMM CORP
		CENTRAL INDEX KEY:			0001017526
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
		IRS NUMBER:				521283030
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		704 QUINCE ORCHARD RD
		CITY:			GAITHERBURG
		STATE:			MD
		ZIP:			20878
		BUSINESS PHONE:		3012589850

	MAIL ADDRESS:	
		STREET 1:		704 QUINCE ORCHARD ROAD
		CITY:			GAITHERSBERG
		STATE:			MD
		ZIP:			20878
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML>
<HEAD>
<TITLE>corresp</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS"><B>Hogan &#038; Hartson</B></FONT><BR>
<B>L.L.P.</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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</TR>
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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">COLUMBIA SQUARE</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">555 THIRTEENTH STREET, NW</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WASHINGTON, DC 20004-1109</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">TEL. (202)&nbsp;637-5600</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FAX (202)&nbsp;637-5910</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WWW.HHLAW.COM</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">February&nbsp;6, 2006
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>BY HAND DELIVERY AND EDGAR</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
450 5th Street, NW<BR>
Mail Stop 4-6<BR>
Washington, DC 20549

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="96%">&nbsp;</TD>
</TR>
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<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Re:</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>ACE*COMM Corporation</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Form&nbsp;10-K for the fiscal year ended 6/30/05</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Filed August&nbsp;31, 2005</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Form&nbsp;10-Q for the quarter ended 9/30/05</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Filed November&nbsp;14, 2005</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>File No.&nbsp;000-21059</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dear Mr.&nbsp;Krikorian:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On behalf of ACE*COMM Corporation (&#147;ACE*COMM&#148;), set forth below are ACE*COMM&#146;s responses to
the Staff&#146;s comment letter dated December&nbsp;15, 2005 to
ACE*COMM&#146;s response letter dated November
1, 2005 relating to your accounting comments on ACE*COMM&#146;s financial statements in the above
filings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACE*COMM&#146;s responses to the Staff&#146;s comments are set forth below beneath the text of the
corresponding comment from the comment letter<B>.</B><U> </U>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Form&nbsp;10-K for the Fiscal Year Ended June&nbsp;30, 2005</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Financial Statements</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Notes to Consolidated Financial Statements</U>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hogan &#038; Hartson L.L.P.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;6, 2005<BR>
Page 2

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Note
10 &#151; Stockholders&#146; Equity, page F-15</U>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>We note your response to prior comment number 1. Confirm to us that the liquidating
damages in all cases are limited to 9% under the amended Securities Purchase Agreement dated
November&nbsp;11, 2005. If so, you now appear to satisfy the conditions in paragraphs 14 through
18 of EITF 00-19 and the warrants would be considered an equity instrument as of the
amendment date. However, we do not agree with certain aspects of your analysis prior to the
amendment. Specifically, we do not agree with factoring in the premium on the warrants when
evaluating whether the liquidating damages represent an uneconomic settlement alternative.
Further, we believe that the </I><I>Rule 144(k)</I><I> holding period is two-years (i.e., no requirement
to comply with Rule&nbsp;144) and only begins upon issuance of the warrants when they must be
cashless exercised. You also make references to defense that you have, however, the
probability of an unfavorable outcome is not assessed in EITF 00-19 only the possibility.
Since the warrants will now be considered equity and if they had been considered a
liability, the warrants would be reclassified to equity. In this regard, in order to
evaluate whether a liability presentation would have been material provide us with an
analysis of the effects of recording the warrants as a liability as of June&nbsp;30, 2005 and
September&nbsp;30, 2005 (i.e., balance sheet and income statement effects) and the effects of
reclassifying the warrants to equity on November&nbsp;11, 2005. Indicate whether you believe
that the effects would be material to those financial statements.</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&nbsp;</B></TD>
    <TD width="1%"><B>&nbsp;</B></TD>
    <TD><B>Response: </B>ACE*COMM has confirmed that the liquidating damages are limited to 9% in
all cases under the amended Securities Purchase Agreement dated November&nbsp;11, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information requested by the Staff and the materiality analysis is set forth
below. As an initial matter, before discussing that information, ACE*COMM notes for
the record that it continues to believe that the warrants should be considered an
equity instrument prior to the amendment date. Specifically, ACE*COMM believes that
the liquidating damages do not represent an uneconomic settlement alternative for
purposes of EITF 00-19. The rationale behind the accounting treatment of the
warrants as a liability is an assumption that ACE*COMM would have chosen or be
forced to redeem the security for cash rather than allowing its conversion into
equity. ACE*COMM never intended at any time that it would have redeemed the
warrants for cash to avoid a penalty of 1% per month, and this was confirmed by the
November&nbsp;11, 2005 amendment with the investors putting an explicit limit on the
liquidating damages.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hogan &#038; Hartson L.L.P.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;6, 2005<BR>
Page 3

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Further, the accounting literature does not mandate any particular level above which
a settlement alternative becomes uneconomic. ACE*COMM believes that the arguments
in its response letter of November&nbsp;1, 2005 regarding why this particular penalty is
not uneconomic in ACE*COMM&#146;s specific situation are persuasive, whether or not one
factors in the premium on the warrants when evaluating the effect of the liquidating
damages. Particularly significant is the discount to market at which the
securities were sold, and the fact that the penalty is 1% per month and not an
upfront penalty of some large amount.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ACE*COMM also believes that it is not liable for the 1% per month penalty after the
one-year Rule&nbsp;144 period, and certainly not after the two year Rule 144(k) holding
period. Standard contract law on remedies looks not just to ACE*COMM&#146;s control, but
to the obligation of the investors to take actions that limit the damages, and
ACE*COMM believes this law limits its exposure based on the ability of the investors
to use the cashless exercise feature. The penalty therefore was effectively capped
at 9&nbsp;months or at worst 21&nbsp;months (after factoring in the three month period to
effect registration), even without the explicit 9&nbsp;month maximum imposed by the
amendment.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>However, ACE*COMM&#146;s very strongly desires to conclude this long-running review
process. The current review process has been running since late April&nbsp;2005,
approximately nine months. ACE*COMM therefore reserves on the issue of whether the
warrants should be considered an equity instrument prior to the amendment date, and
would like to suspend the discussion on this point for the present, subject to the
outcome of the discussion regarding materiality set forth below.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In response to the Staff&#146;s comment requesting an analysis of the effects of
recording the warrants as a liability as of June&nbsp;30, 2005 and September&nbsp;30, 2005 and
the effects of reclassifying the warrants to equity on November&nbsp;11, 2005, ACE*COMM
submits the following.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Balance Sheet</U>. ACE*COMM has run Black-Scholes calculations to value the
warrants as stand alone instruments as of March&nbsp;31, 2005, June&nbsp;30, 2005 and
September&nbsp;30, 2005, arriving at values at March&nbsp;31 of $3.6&nbsp;million, at June&nbsp;30 of
$1.7&nbsp;million and at September&nbsp;30 of $2.8&nbsp;million. (The value associated with the
possible issuance of the &#147;C&#148; warrants is based on an independent valuation since the
&#147;C&#148; warrants were not issued or outstanding as of the measurement dates.
Additionally, for purposes of our current discussion, we have provided the valuation
analysis under this valuation methodology. Should we have to restate prior period
earnings we have retained the assistance of a valuation expert and will employ a
more accurate</TD>
</TR>


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hogan &#038; Hartson L.L.P.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;6, 2005<BR>
Page 4

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>valuation methodology to value the right to receive a C warrant that is included
within the B Warrant.) If the liability equates to the value of the warrant under a
Black-Scholes analysis, from a purely quantitative perspective these are material
numbers relative to ACE*COMM&#146;s balance sheet and income statements for June&nbsp;30, 2005
and September&nbsp;30, 2005. ACE*COMM notes that these values exceed the amount invested
by the investors on March&nbsp;31, 2005, and would have resulted in accounting for the
1,000,000 shares of stock issued to the investors at zero. We are also providing a
supplemental schedule to show the balance sheet and net income changes for all
periods affected.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In addition, ACE*COMM is also aware that the investors holding the warrants agreed
to limit the liquidating damages to 9% of the amount raised (1% per month for 9
months), or an aggregate of $225,000, in an arms&#146;-length transaction. If the
liability equates to the maximum possible payment as reflected in this transaction,
from a purely quantitative perspective the amount is not material relative to
ACE*COMM&#146;s balance sheet for June&nbsp;30, 2005 and September&nbsp;30, 2005. Although this
further transaction with the investors had not occurred as of September&nbsp;30, 2005,
ACE*COMM believes that the materiality analysis should also take into account the
maximum liability as determined in an arms&#146;-length transaction, which may be
considered the best determinant of value. Additionally, ACE*COMM believes that had
the recent interpretations regarding the financial statement treatment of the
warrants been available at inception that it would have been the intent of the
parties to limit the liquidated damages as was done in November.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>From a qualitative perspective, however, ACE*COMM believes that accounting for
the warrants as a liability is not material to ACE*COMM&#146;s financial statements.
Under SAB 99 and other guidance on materiality, in addition to considering magnitude
of an item the company must consider whether it is probable that the judgment of a
reasonable person relying upon the report would have been changed or been influenced
by the inclusion of the item. The value of the warrants as a liability is not
reflective of any obligation of ACE*COMM to pay such amount. The potential cash
exposure to ACE*COMM, even without regard to defenses to payment asserted by
ACE*COMM, would have been $0 at March&nbsp;31 and June&nbsp;30<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> and $75,000 at
September&nbsp;30<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>, which ACE*COMM believes is not material to its balance
sheets at any of the respective dates and significantly less than the liabilities
estimated above. Also, as indicated above, the investors holding the warrants
agreed to limit the liquidating damages to an aggregate of $225,000, in an
arms&#146;-length transaction, which amount is not material to ACE*COMM&#146;s balance sheets
at any of the respective dates.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hogan &#038; Hartson L.L.P.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;6, 2005<BR>
Page 5

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Further, there is a high likelihood (based on numerous registrations by companies in
similar situations that have been completed within the 90&nbsp;days or sometimes 180&nbsp;days
allowed for such registrations) that the liability would reverse in the near term as
the securities were registered, and the liability certainly would reverse over time
as the warrant either was exercised or expired. The nature of the item, as a
temporary liability, along with the likelihood and probable timing of the liability
reversing quickly, argues in favor of the liability not being material despite the
magnitude of the entries on the financial statements, particularly given the
non-cash nature of the item.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Income Statement</U>. The analysis of the effects of recording the warrants as
a liability as of June&nbsp;30, 2005 and September&nbsp;30, 2005 also needs to take into
account the income statement effects. Since the value changes over time, primarily
as a result of changes in stock price and volatility index under Black-Scholes, and
since a derivative would need to be marked to market, ACE*COMM would have recognized
income to the extent that the value of the liability declined during the six month
period prior to the amendment. At March&nbsp;31, 2005 the value of the warrants exceeded
the purchase price by $1.1&nbsp;million resulting in a decrease in net income of $1.1
million. At June&nbsp;30, 2005, the value of the warrants would have declined by $820
thousand resulting in a corresponding increase in net income to $1.2&nbsp;million from
reported net income of $337 thousand. At September&nbsp;30, 2005, the value of the
warrants would have increased relative to June&nbsp;30, 2005 by $1.1&nbsp;million resulting in
a corresponding reduction in net income (changing net income for that period from
$99 thousand to a net loss of $979 thousand). Upon elimination of the liability in
November&nbsp;2005, the liability on ACE*COMM&#146;s balance sheet would go to zero, and there
would be a further corresponding increase in expense of $354 thousand as a result of
an increase in the stock price. These changes in income would not be reversed
following reclassifying the warrants to equity on November&nbsp;11, 2005. Please refer to
the attached schedule for more details on the period to period changes.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ACE*COMM believes that it is not likely that an investor would alter its judgment
regarding ACE*COMM&#146;s operating results or financial condition when considering these
changes to its income statement. In addition to the temporary nature of the
liability and the likelihood of the liability reversing quickly, ACE*COMM believes
that investors would note the following:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any gain or loss recorded is non-cash in nature</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any gain or loss would be reflected outside of income or loss from
operations</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hogan &#038; Hartson L.L.P.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;6, 2005<BR>
Page 6

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>as a result of the limitation on liquidated damages, we know that the
liability estimate at March&nbsp;31, 2005 is not accurate and that cash
surrender is not an alternative</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>management compensation would not be impacted by recording any such gain
or loss</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>recent operating history and related financial results of the company
depict a company facing challenges of competing in the telecommunications
industry, and reflecting large, non-cash, non-operating gains and losses,
particularly in light of the subsequent amendment to the related financing
terms which eliminated the conditions that gave rise to the issue, might
obscure any transparency into the Company&#146;s true financial position and
operating results.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For these reasons, under the materiality guidance of SAB 99, ACE*COMM believes that
accounting for the warrants as a liability would not be material to ACE*COMM&#146;s
financial statements for the periods ended June&nbsp;30 and September&nbsp;30, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>We note in your response to prior comment number 1 that you state that the same
registration obligation and liquidating damages for non- registration exist with respect to
the stock sold outright. Please provide us with your analysis regarding your classification
of the shares of common stock as permanent equity instead of temporary equity. Your
response should address EITF Topic D-98.</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&nbsp;</B></TD>
    <TD width="1%"><B>&nbsp;</B></TD>
    <TD><B>Response: </B>ACE*COMM acknowledges the effect of liquidating damages on the treatment
of equity under EITF Topic D-98. However, ACE*COMM notes that there is no specific
redemption provision contained in the investment agreement, and because the value of
the warrants discussed above exceeds the total proceeds received, the value
associated with the 1,000,000 shares of stock issued to the investors would be $0
and therefore there would be no entry in temporary equity.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Form&nbsp;10-O for the Quarterly Period Ended September&nbsp;30, 2005</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Earnings (Loss) Per Share, page 6</U>
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hogan &#038; Hartson L.L.P.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;6, 2005<BR>
Page 7

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Tell us why you did not provide the disclosures for calculating earnings per share as
outlined in paragraphs 40 and 41 of SFAS 128. The disclosure
should clearly describe those securities that were not included in the earnings per
share since they were anti-dilutive (e.g., warrants, stock options).</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&nbsp;</B></TD>
    <TD width="1%"><B>&nbsp;</B></TD>
    <TD><B>Response: </B>ACE*COMM did not disclose the securities that were not included in the
earnings per share for the quarter ended September&nbsp;30, 2005 as in the period the
Company was profitable and did not exclude any such securities. For the
corresponding period last year (September&nbsp;30, 2004) the total number of potentially
dilutive shares not included in the EPS calculation due to anti-dilution was
176,404. However, ACE*COMM notes the Staff&#146;s comment, and will provide such
disclosures in future Form 10-Q filings.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Note 7
&#151; Merger And Acquisitions, page 11</U>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>We note that you amended your agreement to acquire 2helix that resulted in some
consideration being returned in exchange for an earn-out or contingent consideration. We
also note the pro forma information that illustrates the effect of this amendment. Explain
why the adjustment effect &#147;contract rights and technology&#148; instead of goodwill only. See
paragraph 35 of SFAS 141. Tell us why you believe that the fair value of the intangible
asset should be adjusted as the earn-out is achieved. That is, explain why the amendment
and the earn-out effects the valuation of the intangible. In addition, ensure that your
disclosures comply with </I><I>51(f)</I><I> of SFAS 141.</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&nbsp;</B></TD>
    <TD width="1%"><B>&nbsp;</B></TD>
    <TD><B>Response: </B>The amendment of the 2helix acquisition agreements related primarily to
the estimated value of certain specific contracts existing on the date of
acquisition and changes in that estimated value post acquisition. Accordingly,
ACE*COMM re-valued the applicable contracts using the updated information and
adjusted the purchase price through subjecting a portion of the purchase price to an
earn-out. The purchase price adjustment put some of the initial consideration into
an escrow and the payment of this consideration is contingent upon achieving revenue
targets over a two year period. At the time of the amendment (and today) ACE*COMM
assessed that payment under the earn-out was not probable. (Earn-out payment begins
at $8.25&nbsp;million and as of 10/31/05 $430 thousand in revenue had been achieved.)
Because the earn-out is not probable at this time, and is expected to result in a
reduction of the purchase price, in large part as a result of a decrease in value of
existing contracts, the decrease in the value of the</TD>
</TR>


</TABLE>
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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Hogan &#038; Hartson L.L.P.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stephen Krikorian, Accounting Branch Chief<BR>
U.S. Securities and Exchange Commission<BR>
February&nbsp;6, 2005<BR>
Page 8

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>contracts as determined by the
re-valuation was reflected in the adjustment to contract rights and technology, and
the balance of the price amendment
was reflected in goodwill. ACE*COMM believes this treatment is consistent with SFAS
141 because during the allocation period, the cost associated with the acquisition
changed requiring a reallocation of the purchase price.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">* * * * *
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your attention to this response is greatly appreciated. Should you have any questions
concerning the above responses, please do not hesitate to
call me at (202)&nbsp;637-5736 or Frank A. Bacelli at (202)&nbsp;637-8769.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">Respectfully submitted,

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">/s/ Steven M. Kaufman

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">Steven M. Kaufman

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Enclosures
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="96%">&nbsp;</TD>
</TR>
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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">cc:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Steven R. Delmar</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Frank A. Bacelli</TD>
</TR>
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</DIV>



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